Have We Met the Challenge of Creating Effective Post Grant Challenge Proceedings?

By Manny Schecter
September 7, 2016

Scales of Justice with GavelAre the post patent grant challenge proceedings before the Patent Trial and Appeals Board (PTAB) and created by the America Invents Act (post grant, inter partes, and covered business method reviews) serving their intended purpose? Maybe not. This article reviews the modest number of inter partes reviews (IPRs) not associated with litigation, and considers related causation and ramifications – including the impact on the volume of patent litigation. Surprisingly, the new post grant challenge proceedings may actually be having the opposite result of that desired upon their enactment.

The new post grant challenge proceedings were intended to be a “more meaningful alternative to litigation” for testing the validity of patents.[1] It is unclear whether the “alternative to litigation” objective intended the new proceedings to reduce the occurrence of litigation altogether or merely reduce the duration of litigation that does occur, or both (and in what proportions). The new post grant challenge proceedings were said to be speedier and more robust compared to then-existing inter partes reexamination[2], and less expensive compared to litigation. Speedy and robust challenge proceedings benefit the patent system by eliminating, and thereby minimizing the impact of, meritless patents. Alleged infringers should not have to expend resources defending themselves against meritless patents. Developers should not have to expend resources designing around meritless patents. The needless diversion of resources reduces investment in research and development.

Post grant challenge proceedings may or may not occur in association with litigation. Approximately 85% of IPRs[3] are associated with concurrent litigation[4]. Given the very high association with litigation, IPRs are more of an addition to, rather than a substitute for, litigation. Also, for those IPRs associated with litigation, whether an IPR reduces expense depends on the outcome of both the IPR and the litigation. An IPR might truncate litigation (because the PTAB determines a patent to be invalid or because the IPR induces settlement), thereby reducing expense. However, if both an IPR and litigation proceed too far (whether serially or in parallel), expense may actually increase. How frequently these situations occur is beyond the scope here but worthy of further investigation.

The remaining 15% of IPRs are not associated with concurrent litigation. Perhaps these IPRs are brought by challengers that are not (yet?) infringers of the challenged patent, so litigation against the challengers is not possible. Or perhaps these IPRs are brought by challengers that are potential infringers but before the patentee recognizes the infringement or decides to initiate litigation. If the IPR avoids litigation it is a true alternative to litigation. IPRs are indeed much less expensive than litigation, and a single IPR could even prevent multiple litigations, so this would seem to be a desirable outcome.

According to the USPTO, 1737 petitions for IPR were filed in 2015. Assuming 85% of those IPRs were associated with concurrent litigation, 260 IPRs (15% of 1737) were not associated with litigation (the true figure may actually be less than 260 since subsequent [non-concurrent] litigation could still have occurred). Also according to the USPTO, in the final year in which inter partes reexamination was available (inter partes reexamination was the inter partes predecessor to IPRs), 243 inter partes reexaminations were brought without any concurrent or subsequent litigation[5]. Accounting for litigation subsequent to IPRs, it seems that the volume of IPRs not associated with litigation has not materially increased (and may even be less) compared to the volume of inter partes reexaminations that IPRs replaced.[6]

If IPRs are speedier and more robust than inter partes reexamination, and less expensive than litigation, why then are IPRs used no more frequently than inter partes reexamination? One possible explanation is the cost. Although IPRs are less expensive than litigation, IPRs are nevertheless more expensive than inter partes reexaminations. Both USPTO fees and legal fees associated with IPRs are considerably more than for inter partes reexaminations, likely because of the discovery processes available only in IPRs.

Another possible explanation is the recent phenomenon of “efficient infringement.” Efficient infringement refers to the practice of not concerning oneself with potential infringement of a patent until patent infringement litigation has been initiated[7]. Whereas potential infringers of a patent might at one time have taken a license or pro-actively initiated inter partes reexamination, today those same potential infringers might not act (including an IPR challenge) until a patentee initiates litigation.

The causal relationship between efficient infringement and the association of IPRs with litigation works both ways. Efficient infringement is actually caused by an IPR framework that favors alleged infringers. The broadest reasonable interpretation standard for claim construction[8] and the low rate of accepted claim amendments, combined with other factors, have established a high rate of invalidation in IPRs[9]. The high rate of invalidation empowers potential infringers to simply wait to be sued knowing they have IPRs as “backstop” defenses.

Put the points above together: Efficient infringement reduces the use of IPRs as a substitute for litigation and IPRs that favor infringers encourage efficient infringement. Both promote litigation. To repeat with emphasis, promote litigation! The current regime may actually frustrate the purpose for which it was intended. I supported the creation of robust PTAB challenge proceedings and I continue to do so, but we should reconsider whether we have implemented the appropriate balance of interests to achieve our desired results.

The modest number of IPRs not associated with litigation prompted further investigation. With help from Lex Machina, I compared PTAB challenges associated with litigation to PTAB challenges not associated with litigation. The difference in distribution across USPTO Technology Centers of the challenged patents was striking. Challenged patents not associated with litigation are most frequently from Tech Center 1600 (Biotechnology and Organic Chemistry). Challenged patents associated with litigation are most frequently from Tech Center 2600 (Communications). Tech Center 1600 ranked near the bottom among Tech Centers for challenged patents associated with litigation.

Why? Maybe the difference relates to the enhanced importance of validity issues with respect to pharmaceutical patents (infringement may be less frequently contested because of the need to conform with FDA approvals). Or maybe the difference results from highly publicized IPRs challenging pharmaceutical patents in Tech Center 1600 and attempting to profit from “shorting” the stocks of patentees[10]? Even after eliminating such IPRs[11], challenged patents not associated with litigation are still most frequently from Tech Center 1600. Also of interest: PTAB challenges not associated with litigation have a slightly higher petitioner win rate than PTAB challenges associated with litigation. Further investigation of the data is needed to better understand these findings.

IPRs offer many improvements compared to inter partes reexamination[12]. However, the statistics reveal that IPRs are no more of a true alternative for litigation than the challenge proceeding which they replaced and supposedly improved upon – at least not yet, but with all of the publicity about the high rate of invalidation it is hard to imagine that patent challengers just need more time to gain confidence in IPRs. These statistics combined with the relationship between IPR behavior and the increasing phenomenon of efficient infringement suggest that the post grant challenge proceedings as currently implemented are not a substitute for litigation and may, unfortunately, instead actually promote litigation.

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[1] See, for example, press release, Senator Patrick Leahy of Vermont, Leahy, Hatch, Grassley: Patent Reform Will Protect American Jobs, Promote Economic Development, January 20, 2011.

[2] Ex parte reexamination was available prior to and remained available after the enactment of the America Invents Act.

[3] See Fitzpatrick, Cella, Harper & Scinto, Post Grant HQ Reporter Edition 2.

[4] There are too few post grant reviews for meaningful data and covered business method reviews by definition require that challengers have been sued or charged with patent infringement, so the statistic is only meaningful for IPRs.

[5] Over 600 requests for inter partes reexaminations were filed in the final year in which inter partes reexamination was available.

[6] Most of the statistics in this paragraph can be found at http://www.uspto.gov/patents-application-process/patent-trial-and-appeal-board/statistics.

[7] See Kappos, David, Ludwin, Richard, and Ehrich, Marc, From Efficient Licensing to Efficient Infringement, New York Law Journal, April 4, 2016.

[8] Recently reviewed in Cuozzo Speed Technologies, LLC v. Lee, Under Secretary of Commerce for Intellectual Property and Director, Patent and Trademark Office (S Ct, 2016).

[9] Efficient infringement is also caused by other factors, such as recent Supreme Court decisions on the scope of patent eligible subject matter and the proliferation of non-practicing patent entities.

[10] See, for example, Walker, Joseph and Copeland, Rob, New Hedge Fund Strategy: Dispute the Patent, Short the Stock, The Wall Street Journal, April 7, 2015.

[11] As best as can be identified from the named challengers – the author is unaware of any thorough, case-by-case source on the motivation for challenges.

[12] IPRs are faster, the time to resolution is more certain, limited discovery is available, etc.

The Author

Manny Schecter

Manny Schecter is Chief Patent Counsel and Associate General Counsel at IBM. He has helped IBM generate over $20B of income from IP during his career while maintaining its position as the top annual US patentee for the last 24 consecutive years. He has worked his entire legal career of over 20 years in various business units of IBM, achieving his current position in 2009.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 6 Comments comments.

  1. Paul F. Morgan September 8, 2016 9:04 am

    I am surprised by the suggestion that cost is the difference between IPR and inter partes reexam when the three stage* time delay of the latter is the well acknowledged vital difference for the parallel litigation..
    *CRU Then PTAB then Fed.Cir.

  2. xtian September 8, 2016 10:51 am

    No corresponding litigation with IPRs in 1600 – – When a generic files its ANDA, the quid pro quo for challenging the OB-listed patents is 180 day, 1st filer generic exclusivity. That is valuable to the generic. Why would a generic company try to invalid any OB-listed patent via an IPR and not benefit from its 180 day exclusivity? What incentive does a generic have to “clear the decks” of OB-listed patents for all generics to come to the market?

    Upon closer look at the data, my hunch is that those filing IPRs without being involved in corresponding DC litigation are the “3rd” and “4th” tier generic companies who missed out on being the first ANDA filer, and are using the IPR process to “clear the decks” of OB-listed patents so that its an all-comers markets once the Brand’s regulatory exclusivity expires.

  3. Valuationguy September 8, 2016 12:00 pm

    Manny,
    Many good points in your article. Thanks for taking the time to write it!

  4. Chris Gallagher September 8, 2016 3:50 pm

    IPR has thus made patent enforcement more costly, further denying patent reliability to all but AIA’s well-resourced proponents. If Gene’s AIA series does not demonstrate that AIA was designed to institutionalize “efficient infringement” we will be surprised. Schecter’s post is diplomatically more factual than accusatory. Intended or not, his carefully-documented post foreshadows that conclusion.

  5. curmdgeon September 8, 2016 4:15 pm

    IPRs may have made patent enforcement more costly for the minority of suing patent owners that are petitioned against, but that does not support the arguement that IPRs increase overall patent litigation costs, which were very much higher for defendents before they had that option. A successful IPR is vastly cheaper than a D.C. trial.

  6. Edward Heller September 8, 2016 4:15 pm

    The combination of eBay, Seagate and IPRs promote efficient infringement whereby there is no downside to ignoring a patent. Seagate is gone, but eBay and IPRs remain.

    IPRs will remain a problem because of their lower standard of proof. Even if amended claims are routinely allowed, damages will be forfeit. That is a major reason why IPRs are so sinister, just as are reexaminations.

    Everywhere else in the world, if a claim is limited post-grant, damages are not forfeited if the infringer continues to infringe. We need this reform in US law.